Highly commended: Best performing specialist fund of hedge funds over one year

Pioneer Alternative Investment Management launched the Pioneer Restructuring Fund in June 2007. The aim of the fund of hedge funds (FoHF) was to pull together many of the specialist credit funds under one portfolio and achieve steady capital appreciation over time with controlled volatility, capitalising on the opportunities presented by the different stages of the credit cycle.

The fund, with assets under management (AUM) of $240 million, had a good 2009, with a positive return of 21.57%. The fund hopes to end 2010 with strong gains, helped by active management and close monitoring of market conditions.

So far in 2010 it has returned 5.55% (September), outperforming its benchmark, the HFRX Distressed Securities Index, but with less volatility over the period. Performance has been led by gains from distressed, multi credit and event driven managers.

The fund’s investor base is diversified, with private banks taking the lion’s share (almost 46%) followed by institutional investors (25%) and high net worth individuals (14.5%).

“In an effort to provide a higher degree of diversification to the portfolio during the recent uncertain macroeconomic environment, we tactically moved a portion of the book from the existing restructuring/turnaround / distressed strategies into more trading-orientated credit strategies,” explains fund manager and chief investment officer Richard Berger.

“Expanding our strategy mix allowed us to ensure a focused but diversified portfolio by adding exposure to managers that are able to nimbly allocate capital utilising different credit instruments over various time horizons,” he adds.

The fund, which is listed on the Irish Stock Exchange, benefits from an investment team of 12 based in London, New York, Dublin and Milan. Together they cover manager research and due diligence as well as manage the relationships with over 80 underlying hedge funds.

The team follows a structured investment process, starting with the identification of alpha-generating managers. Analysts then use qualitative and quantitative assessments to define a hedge fund manager’s ‘investment edge’ and whether it is right for the portfolio.

Pioneer’s operational due diligence team identifies all non-investment related sources of risk. Its quantitative researchers then assess performance and risk numbers.

Finally, a manager will not be added to the portfolio unless all seven members of the investment committee agree. If that happens, allocation amounts can be decided.

Just under 56% of the portfolio is invested in distressed credit. Pioneer says it focuses on managers that have the ability to influence the outcome of their investments by taking an active role in the restructuring of the companies in which they invest, advising on the management of companies, being active in creditors' committees or by encouraging investment by third parties who may take an active stance.

While the majority of the fund's assets are invested with managers engaged in a range of restructuring and event driven strategies, the fund also holds positions with managers using more trading-oriented strategies within the specialist credit universe.

Market conditions mean there is a lot to consider right now, according to Berger. “Currently there is a consensus among market participants that the sweet spot for credit strategies, distressed in particular, is approaching with a record $3.6 trillion of leveraged credit in issuance pointing to upcoming opportunities for managers operating in the space,” he says.

“Hedge fund managers making up the core allocations within the portfolio are actively screening for investment opportunities arising from the increasingly unsustainable capital structures and approaching wall of maturities,” he continues. “This is the environment in which the Pioneer Restructuring Fund is expected to differentiate itself by taking advantage through its portfolio composition of the plethora of potential opportunities presenting themselves to credit managers across restructuring, distressed, arbitrage and trading,” Berger concludes.

Fund facts

Full name of fund: Pioneer Restructuring Fund I
Name of investment/management company: Pioneer Alternative Investment Management
Contact: fof_invcomms@pioneerinvestments.com
Portfolio manager: Richard Berger
Launch date: June 30, 2007
Assets under management: $240 million
Annualised return: -0.26% since inception; +21.57% in 2009 and +5.35% year to date at September 2010
Annualised volatility: 11.58% since inception; 5.41% in 2009, 4.04% YTD September 2010
Strategy: specialist credit, restructuring
Share classes: US dollar, euro, sterling, Swiss franc, Australian dollar and yen
Administrator: HSBC Securities Services (Bermuda)
Auditor: KPMG Audit, Luxembourg
Custodian: The Bank of Bermuda
Domicile: Bermuda
Listing: Irish Stock Exchange
Management fee: 1.25%
Performance fee: 10.00%
Minimum investment: $10,000,000 or its equivalent in the relevant base currency for a sub-class
Lock-in/up: three-year lock-up at inception with 15% liquidity on second anniversary
Redemption period: quarterly plus 190 days